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The True Cost of Your Credit Card

If you don't know the major pricing terms of your credit cards--and a surprising number of consumers don't--then it's time for an introduction. After all, how can you manage your finances well if you don't know the conditions under which you're operating? Even if you know

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Here are the 10 main terms you should know before applying for a credit card.

Annual Percentage Rate (APR) on purchases: This is how much interest you pay when you carry a balance for purchases from one month to the next. Credit card companies can't increase the APR on new purchases in the first year of an account or on existing balances, period, unless you're more than 60 days late on payments.

Introductory APR: The introductory APR is in effect for only a limited time. Don't confuse this appealing rate--often advertised in big, bold type--with the higher standard APR when you apply for credit cards.

Credit limit: Know your credit limit, and strive to keep balances below 30% of that amount. Using too much of your credit limit hurts your credit score. Plus, it's embarrassing to have your card rejected at the cash register or at a restaurant if a purchase puts you over the line.

Over-limit fee: However, credit card companies can't let you exceed your credit limit and charge you a fee unless they get your permission to do so. Know the over-limit fee before asking for this privilege, and use it sparingly, if at all.

Annual fee: The annual fee is the price you pay just for having the account. Although some cards have no annual fee, industry observers say credit card companies are experimenting with higher-annual-fee cards to make up for revenue they've lost complying with new federal credit card regulations.

Balance transfer fee and APR: Zero- or low-interest balance transfer credit cards offer low introductory interest rates -- or no interest at all -- on balances transferred from other credit cards. You save on interest if you transfer high-rate balances and pay them off in the introductory period. But weigh the savings against the cost of fees. Many credit cards charge a fee of 3 to 5% of the amount transferred.

Grace period: This is the amount of time you have to pay for purchases before finance charges start accruing. The grace period is structured so you don't owe any interest when you pay your balance in full before the bill is due. However, cash advances and convenience checks typically don't have grace periods, which means you start owing interest on those amounts immediately.

Penalty APR: Expect to pay sky-high interest if you're more than 60 days late on your credit card account. Check out the penalty APR as a reminder to pay your bills on time.

Cash advance fee and APR: Using your credit card to get cash from the ATM costs you big time. The interest rate on cash advances is often several percentage points higher than the purchase APR, and the cash advance carries a fee to boot. The same goes for credit card "convenience checks" that come in the mail.

Late fee: You throw money down the drain when you pay your credit card bill late. A typical late fee is $39.

Understanding the terms of your credit cards is a first step toward managing your accounts wisely. Learn the conditions of your current credit card accounts, and compare terms when you shop for new credit.